Price rigidity and demand-constrained economies

Question

In this note, http://web.mit.edu/krugman/www/MINIMAC.html, Krugman develops a simple model to introduce the idea that whenever an economy experiences price rigidity then this economy is demand-constrained. I have troubles to understand why. I know ISLM model and the basic NK DSGE model with price rigidity but I feel I miss the intuition why price rigidity implies demand constrained economies.

Thank you!

Answer 1

Given a rigid price, $P$, and a static money supply, $M$, real money balances $M/P$ cannot adjust. As a result, people have less real money than they would require to purchase their full-employment product. This results in unemployment and shortage of income driven by lack of aggregate demand.